Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with the financial information and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our outlook, plans and strategy for our business and potential financing, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or “forward-looking information” within the meaning of Canadian securities laws. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “remain,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would,” “should,” “potential,” “intention,” “strategy,” “strategic,” “approach,” “subject to,” “possible,” “pending,” “if,” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements and forward-looking information are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements or forward-looking information. Factors that could cause or contribute to such differences include, but are not limited to, those identified in this Quarterly Report on Form 10-Q and those discussed in the section titled “Risk Factors” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, as amended, and in our other SEC and Canadian public filings. Such forward-looking statements reflect our beliefs and opinions on the relevant subject based on information available to us as of the date of this report, and while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. You should not rely upon forward-looking statements or forward-looking information as predictions of future events. Furthermore, such forward-looking statements or forward-looking information speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements or forward-looking information to reflect events or circumstances after the date of such statements.
Amounts are presented in United States dollars, except as otherwise indicated.
Overview of the Company
Vireo Growth is a cannabis company whose mission is to provide safe access, quality products and value to its customers while supporting its local communities through active participation and restorative justice programs. The Company is evolving with the industry and is in the midst of a transformation to being significantly more customer-centric across its operations, which include cultivation, manufacturing, wholesale and retail business lines. With our core operations strategically located in three limited-license markets through our state-licensed subsidiaries, we cultivate and manufacture cannabis products and distribute these products through our growing network of Green Goods ® and other retail dispensaries we own or operate as well as to third-party dispensaries in the markets in which our subsidiaries hold operating licenses.
Operating Segment
We report our operating results in one business segment: the cultivation, production, and sale of cannabis. We cultivate, manufacture, and distribute cannabis products to third parties in wholesale markets and cultivate, manufacture, and sell cannabis products directly to approved patients and adult-use-customers in our owned or operated retail stores.
During the three months ended March 31, 2025, the Company had operating revenue in three states: Maryland, Minnesota, and New York. Retail revenues during the three months ended March 31, 2025 were derived from sales in 14 dispensaries throughout these three states. We had eight operational dispensaries in Minnesota, four in New York, and two in Maryland. Wholesale revenues were derived from sales of products to third parties in Maryland, Minnesota, and New York.
Merger Agreements with Deep Roots, Proper and Wholesome
On December 18, 2024, we entered into the Merger Agreements with respect the Mergers. Each Merger is an all-share transaction whereby, at the closing of each applicable transaction, (i) a new wholly-owned subsidiary of the
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Company would merge with and into Deep Roots, (ii) a new wholly-owned subsidiary of the Company would merge with and into Wholesome, and (ii) the Proper entities would each merge with and into new wholly-owned subsidiaries of the Company. None of the Deep Roots Merger, the Proper Mergers or the Wholesome Merger is contingent on the completion of any of the other Mergers.
Three months ended March 31, 2025, Compared to Three months ended March 31, 2024
Revenue
We derived our revenue from cultivating, processing, and distributing cannabis products through our fourteen dispensaries in three states and our wholesale sales to third parties in three states. For the three months ended March 31, 2025, 78% of our revenue was generated from retail dispensaries and 22% from the wholesale business. For the three months ended March 31, 2024, 81% of our revenue was generated from retail business and 19% from wholesale business.
For the three months ended March 31, 2025, Minnesota operations contributed approximately 47% of revenues, New York contributed 9%, and Maryland contributed 44%. For the three months ended March 31, 2024, Minnesota operations contributed approximately 46% of revenues, New York contributed 12%, and Maryland contributed 42%.
Revenue for the three months ended March 31, 2025, was $24,540,641, an increase of $453,326 or 2% compared to revenue of $24,087,315 for the three-months ended March 31, 2024. The increase is primarily attributable to increased revenue contributions from the Maryland wholesale business partially offset by the decrease in New York revenues.
Retail revenue for the three months ended March 31, 2025, was $19,233,641 a decrease of $365,799 or 2% compared to retail revenue of $19,599,440 for the three months ended March 31, 2024, primarily due to decreased revenue contributions from the New York business.
Wholesale revenue for the three months ended March 31, 2025, was $5,307,000, an increase of $819,125 compared to wholesale revenue of $4,487,875 for the three months ended March 31, 2024. The increase was primarily due to increased revenue contributions from the Maryland business.
Three Months Ended
March 31,
2025
2024
$ Change
% Change
Retail:
MN
$
11,209,204
$
10,977,089
$
232,115
2
%
NY
1,205,045
1,821,269
(616,224)
(34)
%
MD
6,819,392
6,801,082
18,310
0
%
Total Retail
$
19,233,641
$
19,599,440
$
(365,799)
(2)
%
Wholesale:
MD
$
4,089,238
3,353,661
735,577
22
%
NY
936,351
1,134,214
(197,863)
(17)
%
MN
281,411
—
281,411
100
%
Total Wholesale
$
5,307,000
$
4,487,875
$
819,125
18
%
Total Revenue
$
24,540,641
$
24,087,315
$
453,326
2
%
NY
$
(2,141,396)
$
(2,955,483)
$
814,087
(28)
%
Total Revenue excluding NY
$
22,399,245
$
21,131,832
$
1,267,413
6
%
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Cost of Sales and Gross Profit
Gross profit reflects total net revenue less cost of sales. Cost of sales represents the costs attributable to producing bulk materials and finished goods, which includes direct materials, labor, and certain indirect costs such as depreciation, insurance, utilities and valuation adjustments. Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes.
Cost of sales are determined from costs related to the cultivation and processing of cannabis and cannabis-derived products as well as the cost of finished goods inventory purchased from third parties and valuation adjustments.
Cost of sales for the three months ended March 31, 2025, was $12,128,329, an increase of $285,441 compared to the three months ended March 31, 2024, of $11,842,888.
Gross profit for the three months ended March 31, 2025, was $12,412,312, representing a gross margin of 51%. This is compared to gross profit for the three months ended March 31, 2024, of $12,244,427 or a 51% gross margin. The increase in gross profit was driven by an increase in sales holding flat margins.
We believe our current production capacity has not been fully realized and we expect future operations to benefit from increased revenue growth reflective of higher demand, increased product output and new product development. However, we expect gradual price compression as markets mature, which could place downward pressure on our retail and wholesale gross margins.
Total Expenses
Total expenses other than the cost of sales consist of selling costs to support customer relationships, marketing, and branding activities. It also includes a significant investment in the corporate infrastructure required to support ongoing business.
Selling costs generally correlate to revenue. In the short-term as a percentage of sales, we expect selling costs to remain relatively flat. However, as anticipated positive regulatory developments in our core markets occur, we expect selling costs as a percentage of sales to decrease via growth in our retail and wholesale channels.
General and administrative expenses also include costs incurred at the corporate offices, primarily related to personnel costs, including salaries, benefits, and other professional service costs, as well as corporate insurance, legal and professional fees associated with being a publicly traded company. We expect general and administrative expenses as a percentage of sales to decrease as we realize revenue growth organically and through anticipated positive regulatory developments in our core markets.
Total expenses for the three months ended March 31, 2025, were $10,436,623 an increase of $2,951,640 compared to total expenses of $7,484,983 for the three months ended March 31, 2024. The increase in total expenses is primarily attributable to a increase in stock-based compensation expense and transaction costs associated with the Merger transactions.
Operating Income before Other Income (Expense) and Income Taxes
Operating income before other income (expense) and provision for income taxes for the three months ended March 31, 2025, was $1,975,689 a decrease of $2,783,755 compared to $4,759,444 for the three months ended March 31, 2024.
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Total Other Expense
Total other expense for the three months ended March 31, 2025, was $6,809,479, a decrease of $716,425 compared to other expense of $7,525,904 for the three months ended March 31, 2024. This change is primarily attributable to increased other income driven by the increasing value of the warrants we hold in Grown Rogue.
Provision for Income Taxes
Income tax expense is recognized based on the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end. For the three months ended March 31, 2025, tax expense totaled $1,675,000 compared to tax expense of $3,945,000 for the three months ended March 31, 2024.
NON-GAAP MEASURES
EBITDA is a non-GAAP measure that does not have a standardized definition under the generally accepted accounting principles in the United States of America (“ GAAP”). Total Revenues excluding revenues from states where we have divested operations is also a non-GAAP measure that does not have a standardized definition under GAAP. The following information provides reconciliations of the supplemental non-GAAP financial measure EBITDA presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP. Reconciliations of the supplemental non-GAAP financial measure Total Revenues that excludes revenues from states where we have divested operations presented herein to the most directly comparable financial measures calculated in accordance with GAAP can be found in the tables above where the measure appears. We have provided these non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. These supplemental non-GAAP financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. This supplemental non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented.
Three Months Ended
March 31,
2025
2024
Net income (loss)
$
(6,508,790)
$
(6,711,460)
Interest expense, net
7,599,517
8,722,637
Income taxes
1,675,000
3,945,000
Depreciation & Amortization
257,134
253,581
Depreciation and amortization included in cost of sales
570,040
584,958
EBITDA (non-GAAP)
$
3,592,901
$
6,794,716
Inventory adjustment
433,000
304,000
Grown Rogue termination fee included in cost of goods sold
266,667
—
Stock-based compensation
1,460,850
179,789
Transaction related expenses
1,244,696
—
Other income
(790,038)
(1,327,879)
Severance expense
379,916
—
Loss on disposal of assets
—
120,856
Adjusted EBITDA (non-GAAP)
$
6,587,992
$
6,071,482
Liquidity, Financing Activities During the Period, and Capital Resources
We are an early-stage growth company. We are generating cash from sales and deploying our capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term. Capital
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reserves are for capital expenditures and improvements in existing facilities, product development and marketing, customer, supplier, investor, industry relations, and working capital.
Current management forecasts and related assumptions support the view that we can adequately manage the operational needs of the business.
Credit Facility
During 2017 the Company signed a promissory note payable in the amount of $1,010,000. The note bears interest at a rate of 15% per annum with interest payments required on a monthly basis. In 2019 the Company’s promissory note payable in the amount of $1,010,000 was modified to increase the amount payable to $1,110,000. The Company paid the note off in full during the year ended December 31, 2024.
On November 19, 2021, the Company signed a promissory note payable in the amount of $ 2,000,000 in connection with the acquisition of Charm City Medicus, LLC. The note bears an interest rate of 8 % per annum with interest payments due on the last day of each calendar quarter. On November 19, 2023, the Company and lender amended the note. Per the terms of the amendment, the interest rate was modified to 15 %, and the Company paid off $ 1,000,000 of principal. On November 27, 2024, the Company and lender executed the second amendment to the note. Per the terms of the amendment, the maturity date was extended, the interest rate was increased to 18 %, and the Company repaid $ 100,000 in principal. The remaining principal balance of $ 900,000 was repaid in full during the three months ended March 31, 2025.
On March 25, 2021, the Company entered into a credit agreement for a senior secured delayed draw term loan with an aggregate principal amount of up to $46,000,000 (the “ Credit Facility ”), and executed a draw of $26,000,000 in principal. The unpaid principal amounts outstanding under the Credit Facility bear interest at a rate of (a) the U.S. prime rate plus 10.375%, payable monthly in cash, and (b) 2.75% per annum paid in kind (“ PIK ”) interest payable monthly. In connection with the Credit Facility, the Company also pays a monthly credit monitoring fee in the amount of $130,400 which is included in interest expense in the consolidated statements of loss and comprehensive loss for the three months ended March 31, 2025 and 2024.
On November 18, 2021, the Company and lenders amended the Credit Facility to provide for an additional loan of $4,200,000 with a cash interest rate of 15% per annum and PIK interest of 2% per annum and a maturity date of November 29, 2024. Obligations under the Credit Facility are secured by substantially all the assets of the Company.
On January 31, 2022, Vireo Growth and certain of its subsidiaries, as borrowers (collectively, “ Borrowers ”), entered into a Third Amendment to the Credit Facility (the “ Third Amendment ”) providing for additional delayed draw term loans of up to $55 million (the “ Delayed Draw Loans ”). The cash interest rate on the Delayed Draw Loans under the Third Amendment is equal to the U.S. prime rate plus 10.375%, with a minimum required rate of 13.375% per annum, in addition to PIK interest of 2.75% per annum.
On March 31, 2023, the Company executed a fifth amendment to its Credit Facility with its senior secured lender, Chicago Atlantic Admin, LLC (the " Agent "), an affiliate of Green Ivy Capital, and a group of lenders. The amended credit facility extends the maturity date on its Delayed Draw Loans to April 30, 2024, through the issuance of 15,000,000 Subordinate Voting Shares in lieu of a cash extension fee. These 15,000,000 shares were valued at $1,407,903 using a fair value per share of $0.094 and considered a deferred financing cost. The fair value per share reflects a 22% discount to the market price at the time of issuance to account for the four-month trading lock-up imposed on the shares. The amendment also provides the Company with reduced cash outlays by eliminating required amortization of the loan, and requires the Company to divest certain assets to improve its liquidity position and financial performance. The Company has the potential to extend the maturity date on its Delayed Draw Loans up to January 31, 2026 with the satisfaction of certain financial performance-related conditions.
On April 30, 2024, the Company executed a short-term extension of the maturity date on the Credit Facility with the Agent. The Credit Facility was extended until June 14, 2024, matching all other terms of the existing agreement. On June 14, 2024, another short-term extension was executed which extended the maturity date on the Credit Facility to July 31, 2024, matching all other terms of the existing agreement.
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On May 21, 2024 the Company executed a $1,200,000 term loan with the Agent to assist with the purchase of a site for a new dispensary location. The loan bears an interest rate of 12.0% and is due on May 28, 2027. Financing costs of $68,600 were incurred in connection with the closing of the loan.
On July 31, 2024, the Company executed a ninth amendment to the Company’s Credit Facility. The ninth amendment to the Company’s Credit Facility extends the maturity date on the Credit Facility loans to January 29, 2027, adjusts and extends the deadline with respect to the Company’s ongoing disposition of its New York operations through July 31, 2025, and amends certain financial measure definitions and covenants within the agreement. The Company issued 12,500,000 Subordinate Voting Shares to the lenders in consideration for the credit facility amendment. These 12,500,000 shares were valued at $5,387,500 using a fair value per share of $0.431 and considered a deferred financing cost.
Unless otherwise specified, all deferred financing costs are treated as a contra-liability, to be netted against the outstanding loan balance and amortized over the remaining life of the loan. As of March 31, 2025, $5,704,752 (December 31, 2024 - $6,576,985) of deferred financing costs remain unamortized.
Convertible Notes
On July 31, 2024, the holders voluntarily converted convertible notes issued in 2023 into 73,016,061 Subordinate Voting Shares of the Company.
On November 1, 2024, the Company entered into a Joinder and Tenth Amendment to Credit Agreement. The Tenth Amendment provides a convertible note facility (the “New Convertible Notes”) with a maximum principal amount of $10,000,000. The New Convertible Notes mature November 1, 2027, have a cash interest rate of 12.0 percent per year, are convertible into that number of the Company’s subordinate voting shares determined by dividing the outstanding principal amount plus all accrued but unpaid interest on the Convertible Notes on the date of such conversion by a conversion price of $0.625. The Company incurred $145,717 in financing costs in connection with the signing of the Tenth Amendment.
All deferred financing costs are treated as a contra-liability, to be netted against the outstanding loan balance and amortized over the remaining life of the loan. As of March 31, 2025, $125,472 (December 31, 2024 - $137,622) of deferred financing costs remain unamortized.
Cash Used in Operating Activities
Net cash used in operating activities was $3.3 million for the three months ended March 31, 2025, an increase of $2.1 million as compared to $1.2 million for the three months ended March 31, 2024. The increase is primarily attributed to less favorable changes in working capital, particularly assets held for sale, and increased transaction costs associated with the Merger transactions.
Cash Used in Investing Activities
Net cash used in investing activities was $1.1 million for the three months ended March 31, 2025, an increase of $0.1 million compared to net cash used in investing activities of $1.0 million for the three months ended March 31, 2024. The increase is primarily attributable to increased property, plant, and equipment additions relative to the prior year.
Cash Used in Financing Activities
Net cash used in financing activities was $0.9 million for the three months ended March 31, 2025, a change of $0.2 million as compared to $1.1 million used in financing activities in the three months ended March 31, 2024. The change was principally due to decreased debt principal payments during the three months ended March 31, 2025 relative to the prior year quarter.
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Lease Transactions
As of March 31, 2025, we have entered into lease agreements for the use of buildings used in cultivation, production and/or sales of cannabis products in Maryland, Minnesota, and New York.
The lease agreements for all of the retail space used for our dispensary operations are with third-party landlords and remaining duration ranges from 1 to 6 years. These agreements are short-term facility leases that require us to make monthly rent payments as well as funding common area costs, utilities and maintenance. In some cases, we have received tenant improvement funds to assist in the buildout of the space to meet our operating needs. As of March 31, 2025, we operated 14 retail locations secured under these agreements.
We have also entered into sale and leaseback arrangements for our cultivation and processing facilities in Minnesota and New York with a special-purpose real estate investment trust. These leases are long-term agreements that provide, among other things, funds to make certain improvements to the property that will significantly enhance production capacity and operational efficiency of the facility.
Excluding any contracts under one year in duration, the future minimum lease payments (principal and interest) on all our leases are as follows:
Operating Leases
Finance Leases
December 31, 2024
December 31, 2024
Total
2024
$
2,242,480
$
10,352,595
$
12,595,075
2025
2,727,346
14,183,661
16,911,007
2026
2,474,144
14,606,527
17,080,671
2027
2,254,049
15,042,128
17,296,177
2028
1,300,615
15,490,852
16,791,467
Thereafter
6,523,900
203,082,066
209,605,966
Total minimum lease payments
$
17,522,534
$
272,757,829
$
290,280,363
Less discount to net present value
(5,982,885)
(177,360,043)
(183,342,928)
Less liabilities held for sale
(2,558,483)
(86,792,673)
(89,351,156)
Present value of lease liability
$
8,981,166
$
8,605,113
$
17,586,279
ADDITIONAL INFORMATION
Outstanding Share Data
As of May 7, 2025, we had 367,292,288 shares issued and outstanding on an as converted basis, consisting of the following:
(a) Subordinate Voting Shares
339,475,288 shares issued and outstanding. The holders of Subordinate Voting Shares are entitled to one vote per share at all shareholder meetings. The Company is authorized to issue an unlimited number of no-par value Subordinate Voting Shares.
(b) Multiple Voting Shares
278,170 shares issued and outstanding. The holders of Multiple Voting Shares are entitled to one hundred votes per share at all shareholder meetings. Each Multiple Voting Share is exchangeable for one hundred subordinate voting shares. The Company is authorized to issue an unlimited number of Multiple Voting Shares.
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Options, Warrants, and Convertible Promissory Notes
As of March 31, 2025, we had 30,731,300 employee stock options outstanding, 71,156,247 RSUs outstanding, 3,037,649 Subordinate Voting Share compensation warrants denominated in C$ related to financing activities, and 15,503,937 Subordinate Voting Share compensation warrants outstanding.
Off-Balance Sheet Arrangements
As of the date of this filing, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2024, as amended.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk have been omitted as permitted under rules applicable to smaller reporting companies.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.